What is the difference between primary and excess insurance?

Primary insurance and excess insurance serve distinct roles in the hierarchy of coverage, which is essential to understand when managing risk.

Primary insurance is designed to cover losses up to a specified limit, and it is the first layer of coverage that pays out when a claim is filed. This means that when a loss occurs, the primary insurance policy will respond and provide coverage until the limits of that policy are exhausted.

Excess insurance, on the other hand, is structured to provide additional coverage only after the limits of the primary insurance are reached. It kicks in to cover losses that exceed the primary policy's limits, which can be crucial for ensuring broader protection against significant liabilities or damages.

Therefore, the distinction is clear: while primary insurance takes on the initial responsibility of paying for losses, excess insurance provides an additional layer of protection once those initial limits have been surpassed. This complementary relationship between the two types of coverage is vital for comprehensive risk management strategies.